Evening Headlines
Bloomberg:
- China Banks Enter Eye of Storm Adding Risky Debt to Wealth Funds. The wealth-management products that banks sell at branches across
China are often considered as safe as deposits by customers. There are
growing reasons to question that faith. The ability of Chinese
lenders’ $2.4 trillion of WMPs to generate the returns they promise is
being undermined as monetary easing has pushed corporate bond yields to a
five-year low. Loath to lose market share by advertising weaker
performance, managers of the funds have been adding leverage, extending
maturities and buying higher-yielding notes that are rarely traded,
according to consultancy CNBenefit and HSBC Holdings Plc. "A large number of WMP funds have entered the bond market and used
maturity mismatches and leverage to raise yields," said Gao Shanwen,
chief economist at Essence Securities Co. in Beijing. "If you add the
implicit guarantee to that, along with a general lack of transparency
and regulation, the bond market really could be the next eye of the
storm in financial markets." Banks
are piling into riskier debt despite warnings of a leverage-fueled
bubble from local brokerages, at least five bond defaults this year and
the weakest economic growth in a quarter century.
- Taiwan Economy Shrinks for First Time Since 2009 on Export Slump. Taiwan’s economy contracted on a yearly basis for the first time
since the global financial crisis as a slump in exports amid an uneven
global recovery dragged on consumption. Gross domestic product
fell 1.01 percent in the three months through September from a year
earlier, according to preliminary data released by the statistics bureau
Friday. That compares with 0.52 percent growth originally reported in
the previous quarter and the 0.5 percent drop projected by the median
estimate in a Bloomberg survey of economists. Taiwan’s exports are sliding as economic growth in the top destination of China slowed further to a six-year low last quarter.
- Asian Stocks Poised for Monthly Advance as Investors Await BOJ. Asian stocks stayed on track for their biggest monthly gain in five
years as investors awaited a Bank of Japan decision on monetary policy. The
MSCI Asia Pacific Index was little changed at 133.85 as of 9:05 a.m. in
Tokyo, with Australian banks dragging on the gauge while Samsung
Electronics Co. jumped.
- Fed Sparks Dash for Cheap Debt With December Hike Back on Table. The Federal Reserve has lit a fire under corporate borrowers who are
again faced with the prospect of an interest-rate increase this year. Companies
from Microsoft Corp. to American Express Co. and Norfolk Southern Corp.
rushed back to the bond market to lock in cheap borrowing costs before
the central bank ends its unprecedented zero-rate era. Fed Chair Janet
Yellen and policy makers signaled this week they remain prepared to
raise their key rate as soon as their next meeting starting Dec. 15,
causing pushing the perceived odds of a rate increase to 50 percent.
"The
message has been sent that if you have issuance planned, it might be a
good idea to go now," said Hans Mikkelsen, head of U.S. investment-grade
credit strategy at Bank of America Corp. in New York. "You can’t be
sure what the market will look like when the Fed starts to raise rates."
- Philidor Said to Modify Prescriptions to Boost Valeant(VRX) Sales. A specialty pharmacy that fills prescriptions for Valeant
Pharmaceuticals International Inc. has altered doctors’ orders to wring
more reimbursements out of insurers, according to former employees and
an internal document. Workers at the mail-order pharmacy, Philidor
RX Services LLC, were given written instructions to change codes on
prescriptions in some cases so it would appear that physicians required
or patients desired Valeant’s brand-name drugs -- not less expensive
generic versions -- be dispensed, the former employees said. Typically,
pharmacists will sell a generic version if not precisely told to do
otherwise by a “dispense as written” indication on a script. The more
"dispense as written" orders, the more sales for the brand-name
drugmaker.
Wall Street Journal:
- Iranian-American Executive Arrested in Iran. Move adds to signs that hard-liners are trying to block foreign investors in wake of nuclear deal. Iranian security forces have arrested an Iranian-American businessman
who had promoted improved ties between the two countries, adding to
signs that hard-liners in Tehran are trying to block foreign investors
from entering the Islamic Republic in the wake of the historic nuclear
deal.
- U.S. Backs Off Hard Line on Syrian President’s Future. White House signals it would allow Bashar al-Assad to take part in political transition. The Obama administration entered a crucial round of international talks
on Syria’s war prepared to accept a deal that leaves President Bashar
al-Assad in place for several months or more during the transition to a
new government.
- Clinton’s ‘A’ Economy. Slow business investment means another growth slump. Hillary Clinton told the Boston Globe the other day that she’d give
President Obama “an A” grade for his handling of the economy. “I don’t
think he gets the credit he deserves for saving our economy from falling
into a Great Depression,” she said, listing a variety of his policies.
The likely Democratic nominee is running for Mr. Obama’s third term, so
we wonder if that means taking credit for the likes of Thursday’s third
quarter GDP report of 1.5% growth. The report validated the disparate evidence that the economy hit...
Fox News:
- CNBC moderators get bipartisan drubbing for debate performance. Analysts across the political spectrum may be at odds over who won
the third Republican presidential debate, but they seem to agree on one
thing: the CNBC moderators had a very bad night. The negative
reaction to the debate questions and other factors has become a story
unto itself, almost overshadowing the actual policy debates that broke
out in between the candidate-moderator rancor Wednesday night. The
Republican candidates and observers complained the questions were demeaning, silly, and designed to provoke confrontation rather than genuine policy discussion. Others took aim at the debate format, and wondered about the moderators’ professionalism.
On several sites aggregating Twitter reaction, the moderators were
declared the losers, “hands down.” The Washington Post declared it
“CNBC’s really bad debate night.” “The moderators had a worse night than
the New York Mets … this was a trainwreck,” Fox News' Howard Kurtz
charged Thursday, referring to Game 2 of the World Series, and calling the debate questions “condescending, snide, hostile and borderline insulting.”
CNBC:
Business Insider:
- Justice Scalia warns that the Supreme Court is causing the 'destruction of our democratic system'. Supreme
Court Justice Antonin Scalia was extra fiery during a talk at Santa
Clara University in California this week, saying in no uncertain terms
that the court had been making a lot of bad decisions. In his speech, Scalia said he believes the
"liberal" Supreme Court is heralding the "destruction of our democratic
system," according to an account from the SF Gate. According to Scalia, the court is giving citizens rights the
Constitution doesn't specifically guarantee, like gay marriage and
federally subsidized health insurance.
Economic Information Daily:
- China to Reduce Focus on Growth in Next 5-Year Period. China will reduce focus on economic growth and place priority on preventing "external financial impacts" during 2016-2020 of its next 5-year plan, citing Zhang Ping, researcher at Chinese Academy of Social Sciences.
Evening Recommendations
Night Trading
- Asian equity indices are -.50% to unch. on average.
- Asia Ex-Japan Investment Grade CDS Index 130.75 +1.0 basis point.
- Asia Pacific Sovereign CDS Index 74.5 +2.0 basis points.
- Bloomberg Emerging Markets Currency Index 71.71 +.02%.
- NASDAQ 100 futures +.35%.
Earnings of Note
Economic Releases
8:30 am EST
- 3Q Employment Cost Index is estimated to rise +.6% versus a +.2% gain in 2Q.
- Personal Income for September is estimated to rise +.2% versus a +.3% gain in August.
- Personal Spending for September is estimated to rise +.2% versus a +.4% gain in August.
- Real Personal Spending for September is estimated to rise +.2% versus a +.4% gain in August.
- PCE Core for September is estimated to rise +.2% versus a +.1% gain in August.
9:00 am EST
- ISM Milwaukee for October is estimated to rise to 44.0 versus 39.44 in September.
9:45 am EST
- Chicago Purchasing Manager for October is estimated to rise to 49.4 versus 48.7 in September.
10:00 am EST
- Final Univ. of Mich. Consumer Sentiment for October is estimated to rise to 92.5 versus a prior estimate of 92.1.
Upcoming Splits
Other Potential Market Movers
- The Fed's Williams speaking, Eurozone CPI/German Unemployment reports, BoJ rate decision and the (F) investor day could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by commodity and industrial
shares in the region. I expect US stocks to open mixed and to
weaken into the afternoon, finishing modestly lower. The Portfolio is
50% net long heading into the day.
